APMacro Unit 5 Vocabulary Quiz

caused by a negative supply shock, most likely because of an economy-wide increase in the price of a commodity. supply for a good/service shifts to where there is less supply so the price level rises but demand stays the same then inflation rises.

Unemployment is lower than the natural rate, Economy is operating above full employment level of output, Nominal wages will increase, Gap can be corrected with contractionary fiscal policy. Contractionary fiscal policy will cause the budget balance to increase, leading to a smaller deficit or a larger surplus.

Unemployment is higher than the natural rate, Economy is operating below full employment level of output., Nominal wages will decrease, Gap can be corrected with expansionary fiscal policy. Expansionary fiscal policy will make the budget balance smaller, leading to a bigger deficit or at least a smaller surplus

suggests that a downturn in the economy can happen when prices fall and the value of the currency rises, causing an increase in the real value of debt, causes recessions

measure of debt as a percentage of the country’s GDP to determine how possible it is to pay off the debt. determining how possible it is for us to pay off our debt according to the amount of debt compared to the country's GDP.

caused by positive demand shock, mostly likely because of economic growth paired with expansionary (monetary) policy. demand for a good/service shifts to where there is more demand so the price level and output rise but demand stays the same then inflation rises.

the idea of the Federal Reserve manipulating the currency levels and money supply in circulation to affect interest rates as a result.

the process of lowering the inflation rate. The inflation rate is positive but decreasing. The only way to do this is contractionary monetary or fiscal policy, which will start a recession and cause unemployment. 

results from decreasing the money supply at too rapid of a rate for a sustained period of time. It is a negative inflation rate. When prices fall, the value of dollars goes up. The value of debt owed by borrowers also goes up while their wages stagnate, causing them to have to cut back on spending in order to pay their debt

model that shows the relationship between money supply, price level, and other elements of the economy. M*V = P*Q